TAX revenue plays an important role for the development of the country as it is used to fund infrastructure, provision of healthcare, national security and other public services.
Annually, direct taxes make up more than 50% of the federal government revenue, with corporate and personal income tax among the main contributors.
While corporate tax and personal income tax are often discussed separately, both are linked as they come from the same pool of economic value created by businesses and individuals.
As discussions around Budget 2027 aim to protect households from the rising cost of living, strengthen business competitiveness and build economic resilience, balancing corporate and personal tax is a critical measure.
Changes to either regime should not be viewed in isolation, as they have implications for both companies and individuals.
The key question is not just how much each group pays, but whether the overall tax mix is fair, efficient and supportive of long-term economic growth.
Corporate and personal tax: The current landscape
> Corporate tax
Malaysia’s standard corporate income tax rate currently stands at 24%, while micro, small and medium enterprises that meet the relevant conditions are subject to preferential tax rates of 15% on the first RM150,000 of chargeable income, 17% on the next RM450,000 and 24% on chargeable income exceeding RM600,000.
With numerous countries having adopted the Organisation for Economic Co-operation and Development’s (OECD) Global Minimum Tax (GMT) framework, Malaysia has also implemented the framework for in-scope multinational enterprise groups.
Groups that meet the global revenue threshold are subject to a minimum effective tax rate of 15% on their profits earned in each jurisdiction where they operate.
The introduction of GMT also prompted some low tax jurisdictions to increase their corporate tax rates or introduce top-up taxes to meet the 15% minimum.
In addition, strategies such as tax holidays and exemptions are losing their effectiveness in attracting investments, as many countries are re-evaluating their tax system in response to the changing global tax landscape.
Against this backdrop, Malaysia needs to remain vigilant in preserving its competitiveness through a broader mix of tax and non-tax measures.
> Personal income tax
Malaysia adopts a graduated income tax system, with rates increasing by income levels and a maximum marginal tax rate of 30% for the highest income band.
For individuals, taxes directly affect income derived from employment, business activities and investments, influencing their take-home pay, household spending, savings and overall financial well-being.
While various tax reliefs, deductions and rebates are available to ease the tax burden, many households continue to face financial challenges arising from:
> Rising living costs and housing affordability pressure;
> Education and healthcare expenses;
> Adequate retirement savings in a volatile environment.
Two separate taxes, one economic profit
Although companies and individuals are taxed under separate regimes, they are ultimately linked by the same underlying profit generated in the economy.
Business profits can be paid as salaries, bonuses or directors’ fees, retained for reinvestment, or distributed to shareholders as dividends.
Each route directs value to different stakeholders and interacts with the tax system differently:
> At the corporate level, corporate tax is paid on profits;
> At the individual level, personal tax may apply to income received, including salaries, bonuses, directors’ fees and, in certain circumstances, dividends.
This interaction can influence a range of economic and business decisions, including:
> The distribution of profits where companies weigh the costs and benefits of salary payment, dividend payout to shareholders or retain the profits for investment;
> The company’s structure of compensation, especially if the business owner is also a director or employee where there is the choice of drawing lower salary against taking out returns in the form of dividends;
> The perceived fairness of the system if income generated from the same economic profit appears to be taxed twice or at very different rates, ie, corporate tax rate and personal tax rates.
A simple numerical example will illustrate how the tax burden on one economic income is allocated across two paths.
This example considers a company that earns RM100 of profit before tax.
> Path 1: The profit is taxed at corporate level, then paid to shareholders as dividends.
The company pays corporate tax on profits at 24% resulting in corporate tax, RM24 and after-tax profit, RM76.
> The after-tax profit of RM76 is distributed as dividends to a shareholder. The dividends are exempt from tax in the shareholder’s hands.
> The net dividend to the shareholder is RM76.
Under Path 1, the effective tax rate on the original RM100 profit is 24%.
However, from year of assessment 2025, a 2% tax on dividend income exceeding RM 100,000 per annum is imposed on dividends received by an individual.
A shareholder whose dividend income exceed this threshold may face an additional tax burden while filing their individual tax returns.
As a result, the same underlying business profit is first taxed at the corporate level, and subsequently taxed again at the individual shareholder level, raising broader policy concerns around the cumulative tax burden on the same profit and the fairness of the policy.
> Path 2: The profit is paid out as salary and taxed under personal tax rates.
In this scenario the company pays RM100 as salary to a high-income employee taxed at a marginal rate of 30%:
> The company treats RM100 as a deductible salary expense.
As salary is a deductible expense against profit, the corporate profit is reduced, so no corporate tax is paid on that RM100.
> The high-income employee pays personal tax at 30% on the salary resulting in personal tax of RM30. The employee thus receives a net salary of RM70.
Under Path 2, the effective tax rate on the original RM100 income is 30%.
The two paths produce different outcomes:
> Dividend route: net RM76 (24% effective tax)
> Salary route: net RM70 (30% effective tax)
This simple comparison illustrates that:
> The form in which income is received (dividends vs salary) can significantly affect the final amount retained;
> Differences between corporate and personal tax rates, and any additional taxes on dividends, matter greatly for both business owners and employees.
Budget 2027 can provide the avenue to consider whether these outcomes are equitable and economically efficient, especially as Malaysia refines its approach to dividend taxation and high-income earners.
Globally, the 15% minimum effective tax rate under the OECD Pillar 2 framework, together with fiscal deficits, ageing populations and increasingly mobile workforces, has prompted many countries to reassess:
> How corporate and personal taxes interact;
> Whether their systems encourage investment and entrepreneurship;
> How to avoid excessive double taxation of the same profit.
Malaysia’s overall tax burden, combining corporate and personal tax, must remain competitive and sustainable within the regional and global landscape, particularly as investors, capital and talent become increasingly mobile across borders.
The following factors can be considered in determining the appropriate balance between corporate and personal taxation:
> Economic competitiveness: Is Malaysia’s current 24% corporate tax rate still appropriate in light of regional trends and global minimum tax rules?
Also, are there targeted incentives that can support strategic sectors without overly complicating the tax system?
> Fairness and progressivity in personal tax: Budget 2027 places the people’s welfare as one of its key priorities, with a focus on addressing cost of living pressures.
The reduction of personal income tax rates for certain income bands in 2023, together with the availability of tax reliefs, has helped to ease some of the financial pressures for the middle-income Malaysians.
However, are these sufficiently aligned with the current cost-of-living realities arising from the recent energy crisis?
A strong talent pool is critical to attract investment, raising productivity and the creation of better paying jobs. Is the top marginal rate of 30% appropriately calibrated to balance the revenue needs and talent retention?
> Interaction between corporate and personal tax
Are we unintentionally discouraging certain forms of income distribution (e.g. dividends vs salary) through tax distortions?
Does the emerging taxation of higher dividend income risk reintroduce double taxation of corporate profits?
> Support for investment and job creation
Are companies given enough room after tax to invest in technology, productivity and upskills? How can tax policy reward long-term investment rather than short-term extraction of profits?
> Cost of living and household resilience
Can adjustments to reliefs, thresholds or targeted rebates help households better manage rising costs without undermining fiscal sustainability?
How can the tax system complement other policies (e.g. subsidies, social support) to strengthen financial resilience?
Towards a more balanced tax conversation
As countries continue to reform their tax systems, Budget 2027 provides Malaysia with an opportunity to pursue a more integrated conversation about:
> The “combined” tax burden on corporate profits and personal income;
> The fairness of how that burden is shared;
> The impact of this mix on investment, job creation and household well-being.
A well-calibrated balance between corporate and personal tax will support a sustainable economic growth, encourage investments and create better paying jobs, while keeping Malaysia competitive in attracting investment, capital and talent. It can also advance the country’s ambition to achieve our goal of becoming a high-income nation where people are better equipped to manage the cost of living and participate in the country’s economic progress.
“One profit, two taxes” is not just a technical tax issue—it is central to designing a tax system that works for both businesses and people in a changing economy.
Lim Fang Ching is executive director – Corporate Tax and Fong Chooi Lian is executive director – Global Mobility Services, KPMG in Malaysia. The views expressed here are the writers’ own.
